OREANDA-NEWS. For Swedbank Latvia profit for the first six months of 2015 amounted to 57 million euros (59 million euros in the first six months of 2014). Income was lower and the recoveries higher. Meanwhile, expenses decreased due to continuous focus on efficiency.

“Although the uncertainties surrounding Greece’s status in the Eurozone persist and the economic downturn in Russia continues, the Latvian economy maintains moderate growth. The sentiment of households and businesses is comparatively strong and several indications point to a rise in investment activity and a growing demand for loans. This has allowed stabilizing our lending portfolio. We see that lending volumes have also resumed growth thanks to the record-low interest rates. This unprecedented situation benefits borrowers while upsetting depositors. Like the majority of banks, Swedbank has chosen not to apply negative rates to deposits.” says M?ris Man?inskis, head of Swedbank Latvia.

Loans and deposits

Lending volumes remained flat compared with 31 December 2014, while increased by 1 per cent in the second quarter compared to the first quarter, supported by increased credit demand in the light of stable macroeconomic conditions in Latvia. The positive trend was seen in corporate lending, leasing and consumer finance during the second quarter. New lending volumes increased, reaching 425 million euros in first six months of 2015, against 268 million euros in the same period last year. The lending market share of Swedbank Latvia was 21 per cent as of 31 March 2015 (22 per cent as of 31 December 2014).

Deposit volumes slightly decreased by 2 per cent from 31 December 2014. Swedbank Latvia market share in deposits was 17 per cent as of 31 March 2015 (17 per cent as of 31 December 2014). The loan-to-deposit ratio was 87 per cent (89 per cent as of 31 December 2014).

Credit quality

Net recoveries amounted to 11 million euros (6 million euros in the first six months of 2014) driven by recoveries mainly from a few large commitments. Impaired loans amounted to 138 million euros (154 million euros as of 31 December 2014). Credit quality has improved to such a level that impaired loans are now decreasing at a more moderate pace.

Revenues and costs

Net interest income decreased by 10 per cent compared with the first half-year 2014. Low market interest rates pressured deposit margins. Compared with the previous quarter, net interest income increased by 6 per cent.

Net commissions increased by 3 per cent compared with the first half-year 2014 driven by strong customer activity. Compared with the previous quarter, net commission income increased by 4 per cent.

Total expenses decreased by 5 per cent year-on-year, supported by lower expenses for premises and IT. Compared with the previous quarter, expenses decreased by 2 per cent. The cost-income ratio increased to 0.40 (0.38 in the first six months of 2014).

Last year Europe’s capital adequacy requirements (CRR/CRD IV) were clarified, which made it possible to further optimise the Group’s capital structure. Swedbank’s Baltic operations are very well capitalised after a long period of robust profitability. During the second quarter Swedbank therefore decided to take an extra dividend from the Estonian sub-group of 400 million euros to the parent company. Since profits in Estonia are first taxed upon distribution, this generated an extra tax expense of 100 million euros. Swedbank’s normal dividend policy with respect to the Baltic operations is that around 60 per cent of profits generated by the Baltic subsidiaries since 2014 will be distributed to the parent company, Swedbank AB. Swedbank is also reviewing the possibility to optimise the capital structure in the Latvian and Lithuanian subsidiaries. Distributions in Latvia and Lithuania do not produce similar tax effects, since company tax is paid on an ongoing basis.